Delhi High Court
Space Enterprises vs M/S. Srivivasa Enterprises Ltd. on 1 April, 1998
Equivalent citations: 1998IIIAD(DELHI)185, 1998(2)ALD(CRI)292, 72(1998)DLT666, 1998(45)DRJ375, (1998)119PLR1
Author: S.N. Kapoor
Bench: S.N. Kapoor
ORDER S.N. Kapoor, J.
1. The plaintiff, a registered partnership firm through it Managing partner, Sh. Anil Kumar Aggarwal, has filed this suit under Order 37 CPC on the basis of an agreement dated 12th June, 1991 under which a short term loan of Rs. 10,00,000/- (Rupees Ten Lakhs) was given to defendant No. 1, through its Managing Director Sh. N.S.H. Prasad, to be returned on 31st October, 1991 along with interest at the rate of 24% per annum payable on first of every month. The amount was paid through a bank draft of Canara Bank dated 17th June, 1991. The defendant assured under the agreement that it would be returned on or before 31st October, 1991 with interest at the rate of 24 per cent. The defendant, in addition to above, also agreed and undertook to give other benefit to the plaintiff arising out of exports made by defendant No.1. and the post shipment facilities available to the exporters. The defendant failed to honour his commitment and also failed and neglected to pay the said amount of Rs. 10,00,000/- with interest. A post dated cheque dated 1st August, 1992 for a sum of Rs. 12,71,475/- was given to the plaintiff on 16th July, 1992. This included Rs. 10,00,000/- towards repayment of loan plus interest Rs. 2,71,475/-. This cheque was dishonoured on account of insufficient funds. On 15th October, 1992, the defendants issued a cheque bearing No. 448681 for Rs. 6,00,000/-. This was also dishonoured. Similarly, on 31st August, 1993 another cheque bearing No. 215209 for a sum 1,74,032/- was also dishonoured. Further, on 15th November, 1993 payment of Rs. 1,74,032/- was made. On 1st October, 1993, the plaintiff issued a legal notice. The defendants again on 31st December, 1993 issued a further cheque for a sum of Rs. 10,00,000/-. The said cheque was again dishonoured with a remark "insufficient funds" dated 12th January, 1994. The plaintiff's Bankers debited the plaintiff's account with a sum of Rs. 1,600/-. On 25th January, 1994, another legal notice was issued calling upon the defendants to pay the entire amount including interest accrued up to 31st December, 1993 after making due adjustment in respect of an amount of Rs. 1,74,032/- received by the plaintiff. On 9th February, 1994, the defendant replied the notice through their Advocates and clearly and unequivocally admitted its liability but requested the plaintiff not to initiate legal proceedings and to grant them last opportunity by 30th June, 1994. In response to letter dated 7th July, 1994, on 15th July, 1994 the Advocate of defendants again duly and unequivocally admitted its liability in writing and reiterated the assurance of his clients and again sought time to enable his clients to make the payment of the amounts. Ultimately the plaintiff filed this suit under Order 37 CPC for recovery of Rs. 10,00,000/- as principal and Rs. 4,04,506/- as unpaid interest as mentioned in Annexure-A.
2. The defendants moved an application for leave to defend (IA No. 3350/95) on various grounds. The plaintiff seeks a decree of Rs. 14,04,506/- against defendants No. 1 and 2 while the agreement relied upon by the plaintiff, which is the basis of the suit dated 12th June, 1991, is between the plaintiff and defendant No. 1. As the plaintiff seeks the recovery of the suit amount from defendant No. 2 also, the suit as framed under Order 37 CPC is not competent. Under Order 37 CPC, the plaintiff is not entitled to any future interest as has been claimed in the suit. The amount was advanced by the plaintiff for the operation of sea fishing trawlers. It is claimed that the whole industry has been declared sick by the Government of India and a Technical Committee was appointed vide order dated 10th May, 1993. The Technical Committee gave its report dated 11th March, 1994 which is being examined by the Central Government, Ministry of Food Processing. It is also claimed that since the plaintiffs had taken the proceedings under Section 8 of the Negotiable Instruments Act (hereinafter called "the NIA" for short), in view of this the present suit is liable to be stayed. It is claimed that triable issues arises and therefore, unconditional leave should be granted. Defendant No. 2, Sh. N.S.H. Prasad, has also sought leave on the same ground.
3. An application under Section 5 of the Limitation Act has also been filed by the defendants. It is claimed that the last date of filing of the application for leave to appear, contest and defend the suit was 15th April, 1995. But on that day the High Court was closed. The application was sent through courier and it was received on 12th April, 1995. However, the packet containing the application for leave to defend was received in Delhi on 17th April, 1995 and it was filed in the Court on the same day. As such there was delay of just one day in moving the application for leave to defend. It was not intentional and was bona fide. This is supported with an affidavit of Sh. N.S.H. Prasad, defendant 2.
4. The plaintiff has taken two preliminary objections. First is that defendants have dis-entitled themselves from seeking and obtaining leave to defend, for the application was filed beyond the time permitted under Order 37 CPC, and second is that no cogent, sufficient and bona fide defense has been raised against the claim. As such, no triable issue arises. The purported report of the Technical Committee is totally irrelevant, for the Technical Committee (so appointed) was only to look into the factors concerning funding of deep sea fishing vessels by the Government agencies and to give its recommendation for providing compensation or concessions by the said Government agencies.
5. I have heard learned counsel for the parties and gone through the record.
6. In so far as the report of the Technical Committee is concerned, it is very much apparent from the reading of various recommendations that firstly, they are mere recommendations and are yet to be accepted Secondly, none of the recommendations relate to loan in question. They relate to insurance premium amounts for fishing vessels paid by the Government, SCICI. It also provides for writing off of penal interest plus 40% of the principal amount, and the companies choosing this option have to a token payment of Rs. 1 lakh per vessel, all insurance premium amounts and further it shall withdraw all legal cases filed by it against the Government of India and SCICI before its assistance becomes effective. Thus, it is apparent that these are recommendations and have nothing to do with the present loan nor the learned counsel could point out any such thing.
7. However, there are further two points which are required to be considered on merits. One relates to whether the plaintiff could file a suit for recovery of the amount under Order 37 CPC against defendant No. 2 or not? The fact that defendant No. 2 was or is the Managing Director of defendant No. 1 may or may not be material in an ordinary suit, for in an ordinary suit the Court may be required to remove the corporate veil to catch hold of the real culprit.
8. Defendant No. 1 does not dispute the acknowledgment. In their entire application the defendants do not dispute issuance of the cheques from time to time as mentioned above by the plaintiff, giving cheque dated 31st December, 1993, its subsequent dishonour and the notices. So far as defendant No. 1 is concerned, it does not appear at all that defendant No.1 has any plausible defense.
9. The fact that criminal case has been filed under Section 138(A) of the NIA is of no consequence so far as maintainability of the present suit is concerned, for the present suit relates to civil liability and is totally independent of criminal proceedings. It may be mentioned that Section 10 CPC would not be applicable in respect of the present suit, for the criminal court would not have any jurisdiction to grant any relief which is sought in the suit; proceedings under Section 138 of the NIA cannot be assumed to be of like jurisdiction. As such, this is of no consequence in so far as this suit is concerned.
10. Now, I take up the third point relating to future interest claimed in this suit. The purpose of Order 37 Rule 1 sub-Rule (1) appears to be to decide the suit summarily any definite sum of amount is being sought to be recovered either upon negotiable instruments or a debt or a liquidated demand in money payable by the defendant with or without interest arising on a written contract. There is no dispute in this case that there is a written contract. The amount is iquidated sum of Rs. 10 lakhs. It carries interest at the rate of 24% per annum. The present suit seeks to recover future interest also. In this case the defendant undisputedly issued cheques for a sum of Rs. 10 lakhs as well as for interest at the rate of 24% per annum which were dishonoured. Under Section 79 and Section 80 of the NIA, interest is to be awarded up to the institution of the suit in accordance with the provisions of the NIA and in respect of subsequent period under Section 34 of the CPC either at the agreed rate of interest or at the rate at which monies are lent or advanced by the banks in relation to commercial transactions. In case where the plaintiff do not claim any enhanced rate of interest, it is just a contractual rate of interest. The position would have been slightly different in case interest was claimed at enhanced rate, for then the question of substitution of another agreement or a statutory rule might have required to be considered. But so long the plaintiff claims interest at the agreed rate of interest the suit could certainly be filed under Order 37 CPC and there cannot be dispute about it. There is yet another aspect that awarding interest during the pendency till the date of decree or from the date of the decree till realisation is no doubt a matter of discretion of the Court. It is to be awarded with judicial discretion without showing any arbitrariness. In case agreed rate of interest is not 24%, the Court is supposed to grant interest at a rate either with reference to Section 79 or Section 80 of NIS or under Section 34 of the CPC. In case of agreed rate of interest the Court is only required to see that it is not exorbitant, unconscionable and against the public policy of keeping the interest pegged at a reasonable rate of interest which may vary by one or two per cent from the rate of interest at which banks lend and advance monies for the purpose of commercial transactions. In this case the interest of 24% not being compoundable and being simple appears to be reasonable and cannot be said to be unconscionable or against the public policy, for in the cases of loans and advances given by the banks, the interest of twenty four and a half per cent is compoundable with quarterly rest. Consequently, this plea also fails. Learned counsel for the plaintiff has referred to a number of cases wherein the Courts have awarded interest subsequent to the date of decree in a suit filed under Order 37 CPC. They are as under:-
1. Venkatachalapathi Nidhi Vs. G.K. Nangappa Goundan, AIR 1933, Madras 299.
2. Rajesh Ahuja Vs. Manoj Mittal and Anr., 59 (1995) DLT 823.
3. Punjab & Singh Ban Vs. Manjit Properties Pvt. Ltd., 1995 I AD (Delhi) 1339.
4. Punjab & Sind Bank Vs. Joginder Pal Minocha, 1997 IV AD (Delhi) 411.
11. In so far as the liability of defendant No. 2 is concerned, the effect of the registration of a company under Section 34 of the Companies Act is that it is a distinct and independent person in law and is endowed with special rights and privileges; a person distinct from its members. Consequently, the company is enabled to contract with its shareholders also, to use common seal and acquire and hold property in its corporate name. The company is distinct from its shareholders and its directors. Neither the shareholders nor the director can treat the companies assets as their own. Directors of a company are liable for misappropriation of company's funds and other misfeasance, but not for an ordinary contractual liability of the company. The liability of the members or the shareholders or the directors is limited to the capital invested by them. So long the liability is not unlimited under Sections 322 and 323 of the Companies Act and no special resolution of the limited company making liability of the directors or the managing directors unlimited is alleged. The doctrine of lifting of the corporate veil could be applied in cases of tax evasion, or to circumvent tax obligation or to perpetuate fraud or trading with an enemy are concerned. It is not alleged that the director has lost the privilege of limited liability and has become directly liable to the plaintiff i.e. creditor of the company on the ground that with his knowledge the company carries on business six months after the number of its members was reduced below the legal minimum number. In absence of such a case it would be totally inappropriate and improper to say that defendant No. 2 is patently covered under Order 37 CPC.
12. There is no contract between the plaintiff and defendant No. 2. Therefore, case against defendant No. 2 is not based on any contract nor there is any such liability on defendant No.2. Consequently, there is no cause of action against defendant No. 2. Since there is no cause of action against defendant No. 2, the plaint is liable to be rejected so far as defendant No. 2 is concerned.
13. As regards defendant No. 1 the suit is certainly covered within the provisions of Order 37 CPC based on a written contract and defendant No. 2 cannot forestall its liability to pay under the agreement under the NIA for the dishonoured cheques etc. Accordingly, the suit is decreed under Order 37 CPC for recovery of Rs. 14,04,506/- inclusive of interest at the rate of 24% till the date of filing of the suit with pendente lite and future interest at the rate of 24% per annum on the principal sum of Rs. 10,00,000/- with costs against defendant No.1. Plaint is rejected against defendant No.2.
14. I.A. Nos. 3350/95, 4250/95 and Suit No. 2429/94 are decided accordingly.